Judge declines to keep eminent domain case on tap

A federal judge on Monday dismissed a bank lawsuit challenging Richmond’s eminent domain quest for underwater mortgages on the grounds that it was premature.

U.S. District Court Judge Charles Breyer already said at a hearing on Thursday that he felt the case, brought by Wells Fargo and Deutsche Bank on behalf of holders of underwater mortgages, was not “ripe for determination” since Richmond had not exercised eminent domain and might never do so.

“Isn’t this, as we say in the trade, a no brainer?” he said in court.

But he gave both sides a chance to weigh in on whether he should hold the case in abeyance or dismiss it outright.

His Monday ruling agrees with points raised by attorneys for Richmond and Mortgage Resolution Partners, the private investment firm assisting its potential plan to seize and restructure underwater home loans.

The case is about “future events that may never occur,” his decision said. That would mean “the matter could linger in abeyance for an indefinite amount of time.”

Richmond resident Morris LeGrand (back to camera) speaks in favor of eminent domain for underwater mortgages at the City Council meeting on Tues., Sept. 10. (Carlos Avila Gonzalez/The Chronicle)

In late July Richmond sought to buy 624 underwater mortgages at steep discounts, and threatened that it might invoke eminent domain if its offers were refused. But using that municipal power of forced seizure would require the city council to pass a “resolution of necessity.”

No such resolution is currently on the council agenda. The resolution would require a supermajority of five votes to pass. At a City Council meeting last week, only four council members supported continued exploration of the eminent domain plan.

Richmond had argued that keeping the lawsuit on tap would “serve the banks’ purpose of chilling the political process” by discouraging other cities from joining a Joint Powers Authority to consider eminent domain, and by deterring the owners of underwater loans from negotiating with the city on principal reduction.

Attorneys for the banks, which were seeking a temporary injunction halting the plan, argued that holding the case in abeyance would give them a chance to present their arguments in federal court about why they consider the program unconstitutional before the city could seize the loans.

Carolyn Said is a San Francisco Chronicle staff writer. Twitter: @csaid